Chinese Investment in US Businesses: What the 2025 Rule Changes Allow in 2026
- Jeff Chang
- 4 days ago
- 7 min read
Chinese companies continue to approach US businesses about investment, partnerships, and acquisitions. For business owners fielding these inquiries, the question is no longer just whether a deal makes commercial sense, but whether it's even possible under current regulations.
The rules governing Chinese investment in US businesses changed significantly in early 2025. Some arrangements that would have been approvable a few years ago are now effectively off the table. Others remain viable with proper structuring. This article provides a general overview of what's restricted and what may still work. It is not a substitute for legal advice on any specific transaction.
What Changed for Chinese Investment in the US in 2025
In February 2025, the White House issued the America First Investment Policy, which directed the Committee on Foreign Investment in the United States (CFIUS) to tighten its approach to Chinese investment. CFIUS is the interagency body that reviews foreign investments in US businesses for national security concerns.
The policy brought several notable shifts. Mitigation agreements, which previously allowed some Chinese investments to proceed with conditions attached, are now largely unavailable for Chinese investors. Instead of negotiating terms to address security concerns, deals involving Chinese parties in sensitive areas face a higher likelihood of outright rejection.
The policy also signaled heightened scrutiny for Chinese investments in sectors the government considers sensitive, including technology, healthcare, agriculture, critical infrastructure, and energy. While CFIUS has long paid attention to these areas, the 2025 policy formalized a more restrictive posture.
Passive investment is nominally still welcomed "from all foreign persons" under the policy. However, the threshold for what qualifies as passive when a Chinese investor is involved appears to be quite narrow in practice. Investments that might be considered passive from other countries may not receive the same treatment when Chinese parties are involved.
What Generally Doesn't Work
Certain deal structures face significant obstacles under the current framework.
Controlling investments in sensitive sectors. Chinese investors seeking majority ownership or control of US businesses in technology, healthcare, agriculture, critical infrastructure, or energy will likely encounter serious regulatory barriers. The same applies to businesses that handle sensitive personal data or produce items subject to export controls.
Board seats and governance rights. Even minority investments can trigger scrutiny if they come with board representation, observer rights, veto powers over certain decisions, or access to non-public business information. These features can transform what might otherwise be a passive investment into something that draws regulatory attention.
Access to technical information or sensitive data. Deals structured to give Chinese partners access to proprietary technology, trade secrets, or large datasets of personal information are particularly problematic, regardless of the equity percentage involved.
Third-country routing. Some parties attempt to structure investments through entities in Hong Kong, Taiwan, Singapore, the Cayman Islands, or other jurisdictions to obscure Chinese beneficial ownership. This approach generally does not work. CFIUS regulations require disclosure of ownership structures up to the ultimate beneficial owner, and the committee scrutinizes arrangements that appear designed to circumvent restrictions on Chinese investment.
The regulations define a Chinese investor broadly to include not just individuals and entities in China, but also companies in third countries where Chinese persons hold significant ownership stakes or exercise control. Attempting to route investment through intermediaries can create additional legal exposure without achieving the intended result.
What May Still Work
Not all commercial relationships with Chinese companies are restricted. Several structures may remain viable depending on the specific circumstances.
Licensing agreements. A Chinese company can potentially license technology, brands, or intellectual property from a US business in exchange for royalty payments. Because licensing typically does not involve an equity stake, board rights, or control over the US business, these arrangements generally fall outside CFIUS jurisdiction.
That said, licensing deals involving certain technologies may be subject to export control regulations administered by the Commerce Department or other agencies. The fact that a deal is outside CFIUS does not mean it is free of regulatory requirements.
Supply and distribution agreements. Commercial relationships where a Chinese company serves as a customer, supplier, or distributor, without taking an ownership stake in the US business, are generally not subject to CFIUS review. These remain ordinary commercial transactions.
Passive minority investment. CFIUS regulations provide a safe harbor for investments resulting in 10% or less of the voting interest in a US business, but only if the investment is "solely for the purpose of passive investment." This means no board seats, no governance rights, no access to material non-public information, and no involvement in business decisions.
For Chinese investors specifically, even arrangements that technically meet these criteria may face questions. The practical application of the passive investment exception for Chinese parties appears limited, and may work best for investments in publicly traded securities where the investor has no relationship with the company beyond holding shares.
Non-sensitive sectors. Some industries remain more accessible to Chinese investment than others. Businesses without significant technology components, sensitive data, government contracts, or proximity to critical infrastructure may face a lighter review, though the list of sectors considered sensitive continues to expand. The specific facts of each situation matter considerably.
Warning Signs in Proposed Deals
Certain patterns in deal proposals may indicate potential problems.
An insistence on board seats, observer rights, or governance participation in a company that handles sensitive technology or data should raise questions about whether the proposed structure can clear regulatory review.
Requests for access to technical documentation, source code, customer databases, or other proprietary information early in discussions, before a deal is finalized, warrant caution.
Complex ownership structures involving multiple holding companies across different jurisdictions can be a sign that parties are attempting to obscure the true source of investment. These structures tend to draw additional scrutiny rather than avoiding it.
Pressure to close a transaction quickly without addressing regulatory considerations may indicate that the other party does not expect the deal to survive review.
Unusually favorable terms, such as valuations well above market or one-sided provisions, sometimes appear in deals where the strategic value to the investor extends beyond ordinary commercial returns.
None of these factors is conclusive on its own, but they can indicate that a proposed arrangement requires careful evaluation before proceeding.
Frequently Asked Questions
Can Chinese companies still invest in US businesses?
Yes, but the range of permissible investments has narrowed considerably. Passive investments, certain minority stakes in non-sensitive businesses, and commercial arrangements that don't involve equity may still be possible. Investments seeking control or significant governance rights in sensitive sectors face substantial barriers.
What is CFIUS and when does it apply?
CFIUS is an interagency committee that reviews foreign investments in US businesses for national security implications. It has jurisdiction over transactions that could result in foreign control of a US business, as well as certain non-controlling investments in businesses involving critical technology, critical infrastructure, or sensitive personal data. CFIUS can review transactions even after they close, and there is no statute of limitations on its authority.
What sectors face restrictions for Chinese investment?
Technology, healthcare, agriculture, critical infrastructure, energy, and businesses handling sensitive personal data all receive heightened scrutiny. Real estate near certain military installations is also restricted. The scope of what's considered sensitive continues to evolve.
Can a Chinese company invest through a US subsidiary or third-country entity?
CFIUS looks through corporate structures to identify ultimate beneficial owners. A Chinese company cannot avoid scrutiny simply by routing investment through an entity incorporated elsewhere. The regulations specifically address investments by companies in third countries that are owned or controlled by Chinese persons.
Is a licensing deal with a Chinese company subject to CFIUS?
Generally, licensing arrangements that don't involve equity investment, board rights, or control fall outside CFIUS jurisdiction. However, export control regulations may still apply depending on the technology involved. The absence of CFIUS review does not mean the transaction is unregulated.
What are the consequences of proceeding without CFIUS review?
CFIUS can initiate reviews of transactions that were not voluntarily filed, including completed transactions. If the committee identifies national security concerns, it can impose conditions, require modifications, or in some cases order divestiture. Civil penalties may also apply for certain violations.
Can Chinese investors buy publicly traded stock?
Purchasing shares on public markets generally falls outside CFIUS jurisdiction, provided the investment is truly passive and doesn't come with any special rights or access. However, accumulating a significant stake or seeking to influence the company could change that analysis.
How are Chinese government connections evaluated?
Investments by entities with ties to the Chinese government, military, or Communist Party receive heightened scrutiny. However, even investments by private Chinese companies face more rigorous review than they did in prior years. The distinction between state-connected and private Chinese investment matters less than it once did for practical purposes.
Do these rules apply to Taiwanese or Hong Kong companies?
Taiwan and Hong Kong present different regulatory considerations. Taiwanese companies are generally treated as foreign investors from a friendly jurisdiction, not as Chinese investors, and face a different review posture. Hong Kong companies may face additional scrutiny depending on their ownership structure and connections to mainland China. We will address Taiwanese investment in a separate article.
Conclusion
Working with Chinese companies remains possible, but the path has narrowed. Licensing arrangements, supply agreements, and certain passive investments may still be viable depending on the circumstances. Investments seeking control, board representation, or access to sensitive information face significant regulatory obstacles.
The rules in this area continue to evolve, and each situation involves its own facts. Businesses approached by Chinese companies about potential deals should evaluate the regulatory landscape before making commitments.
How Chang Law Group Can Help
We advise US businesses on structuring commercial relationships with Chinese companies, evaluating proposed investments for regulatory risk, and navigating the CFIUS process when appropriate. If you've been approached by a Chinese company about investment, partnership, or acquisition, we can help you understand your options.
Chang Law Group LLC: One Marina Park Drive, Suite 1410 Boston, MA 02210
Contact:
Phone: (617) 307-1238
Email: info@jchanglaw.com
WeChat: ChangLawGroupLLC
This article provides general information only and is not legal advice for your specific situation. Reading this post does not create an attorney-client relationship with Chang Law Group. This article may not reflect recent developments or apply to your particular circumstances. Consult Chang Law Group LLC to evaluate your specific situation and options.